The Fed is cautiously and predictably raising policy rates and the ECB will not begin to taper its bond buying until 2018.
Diminished Trump policy risk and European political risks, along with still highly accommodative monetary policies, underpin the recent decline in financial market volatility, albeit to a level that is troubling.
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Volatility provides discipline by discouraging excessive leverage and risk-taking. The danger is that a prolonged period of exceptionally low market volatility will create the conditions for financial instability.
Active investment managers must respect the property of others, as higher interest rates, policy uncertainty and volatility will return.
David Riley is head of strategy at BlueBay Asset Management
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